ATO $1,000 warning as Aussies urged to act now to avoid tax hit: ‘Take out early'

Yahoo

26-01-2025

Aussies are being urged to get their health insurance in order now if they want to avoid being hit with a big tax bill from the Australia Taxation Office (ATO). The Medicare Levy Surcharge is applied to Aussies who earn over a certain amount and don't have private health insurance.
Nearly half a million Aussies paid the Medicare Levy Surcharge through their tax returns in previous years. The surcharge is between 1 and 1.5 per cent of your income and applies to singles earning over $97,000 and families earning over $194,000 who don't have an appropriate level of hospital cover.
H&R Block director of tax communications Mark Chapman told Yahoo Finance Aussies wanting to avoid the tax penalty should consider getting a health insurance policy sooner rather than later. By doing it now, you could also avoid the health insurance premium rise scheduled for April 1.
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'If you do purely want to avoid the tax penalties, then it makes sense to take out a private health policy early in the tax year because then you're saving the Medicare Levy Surcharge, which is potentially chargeable for the remainder of that tax year,' Chapman said.
'Obviously you do need a certain level of income to qualify for the Medicare Levy Surcharge in the first place so again that's worth bearing in mind.'If the surcharge applies to you, you will be charged 1, 1.25 or 1.5 per cent of your income when you lodge your tax return. This is different to the Medicare levy, which is 2 per cent of your taxable income and applies to most taxpayers.
Someone earning the average $100,016 full-time income would pay a 1 per cent surcharge or $1,000.16 if they didn't have insurance. Meanwhile, a family with two people earning the average full-time income would pay $2,000.32 combined.
Chapman said the definition of income was broader than just your taxable income.
'It includes reportable fringe benefits, reportable super contributions, you have to add back any investment losses you've made such as negative gearing, so they're all included in the income threshold,' he explained.
Here are the 2024-25 income thresholds:
Tier 1
Tier 2
Tier 3
Single
$97,001 - $113,000
$113,001 - $151,000
Over $151,001
Family
$194,001 - $226,000
$226,001 - $302,000
Over $302,001
Surcharge
1.0%
1.25%
1.5%
Unfortunately, Chapman said there's no straightforward answer to this question and it will all depend on your personal circumstances and individual risk threshold.
'Obviously, private health insurance is quite expensive and the Medicare Levy Surcharge is quite expensive, so there isn't an easy option,' he told Yahoo Finance.
'It depends on the quote you've been given by the health fund provider and it depends on whether you think you are likely to have something that will require you to claim.
'You do need to work through the numbers and work out whether it's actually going to be in your favour to take out private health cover or not.'
The average annual cost of hospital and extras health insurance for those under 36 is $3,261, according to Canstar, and $3,764 for those between 36 and 59.
Hospital-only cover is $2,341 on average for those under 36 and $2,896 for people between 36 and 59.
It's also worth being aware that if you don't take out hospital insurance before you turn 31, the government adds a Lifetime Health Cover (LHC) loading onto your premiums.
This is 2 per cent for every year you are aged over 30, up to a maximum of 70 per cent. It only disappears once you have had cover for 10 continuous years.
'The message is that the earlier you take it out, the less LHC loading there will be,' Chapman said.
'Ideally, you should take it out before you reach the age of 31, if you take it out afterwards there might be an additional loading on the premiums you pay, which can be quite expensive because it's 2 per cent per year.'